Chapter 15

Venture Capital: * Private financing for relatively new businesses (often high-risk) in exchange for stock. * Individual venture capitalists invest their own money; so-called “angels” are usually individual investors, but they tend to specialize in smaller deals. To limit their risk, venture capitalists generally provide financing in stages. First-stage financing might be enough to get a prototype built and a manufacturing plan completed. Second-stage financing might be a major investment needed to begin manufacturing, marketing, and distribution. Mezzanine level financing refers to the level just above the ground floor. * Private equity is often used to label the rapidly growing area of equity financing for nonpublic companies. * Usually entails some hands-on guidance * The ultimate goal is usually to take the company public and the VC will benefit from the capital raised in the IPO * Many VC firms are formed from a group of investors that pool capital and then have partners in the firm decide which companies will receive financing

Choosing a Venture Capitalist * Financial strength is important * Style is important * References are important * Contacts are important * Exit strategy is important

The Public Issue * Public Issue—the creation and sale of securities, which are intended to be traded on the public markets * All companies on the TSE(Toronto Stock Exchange) come under the Ontario Securities Commission’s (OSC) jurisdiction

The Basic Procedure for a New Issue * Prospectus—Legal document describing details of the issuing corporation and the proposed offering to potential investors * Red herring—Preliminary prospectus distributed to prospective investors in a new issue of securities * Seasoned new issue—A new issue of securities by a firm that has already issued securities in